Vince Cable raises tension with Germany over Tobin tax

LONDON Business Secretary Vince Cable slammed Germany's position on an EU financial transactions tax as "completely unjustified" on Wednesday, raising tension between Britain and Germany days before their leaders meet to discuss the euro zone debt crisis.

Cable responded sharply to a senior member of German Chancellor Angela Merkel's conservative bloc who accused Britain on Tuesday of selfishness over its rejection of a European Union-wide financial transactions tax, which Germany backs.

Britain, home to Europe's biggest financial centre, fears such a tax -- also known as a Tobin tax after the economist who first suggested it -- would drive business away from London.

The dispute could sour a meeting in Berlin on Friday between Merkel and Prime Minister David Cameron, two of Europe's heavyweight politicians.

Cable said Britain should not sign up to an EU-wide transactions tax and said it was up to the euro zone members to decide if they wanted to go it alone with a financial transactions tax, leaving out Britain.

"I think the Germans are (taking) a completely unjustified position," he told Reuters at a conference in London.

Most of the revenue from a transactions tax would come from Britain, while the proceeds would flow into the European budget, he said.

"I don't think, frankly, people in this country want to see a new tax on financial services -- which they will ultimately pay for -- being diverted into common market agricultural policy and roads that go to nowhere. That is not a sensible way of dealing with things," he said.

Cable, a member of the pro-European Liberal Democrats, said Britain already had a tax on bank balance sheets.

A TAX FOR BRITISH CONDITIONS

"It's a good system and we are going to deal with taxation of the banks and financial services in a way that suits British conditions," Cable said.

It was up to the euro zone whether it pushed ahead with a transactions tax without Britain, he said, but added: "The experience in the past of countries that have gone it alone, like Sweden, is that they actually finish up losing money. So unless you deal with all financial centres, it doesn't work."

He was responding to Merkel ally Volker Kauder, who said on Tuesday it was unacceptable for Britain to only defend its own interests and that if the whole EU did not agree to implement the transactions tax, the euro zone should go it alone.

The dispute underlines differences between Britain and Germany over how the euro zone debt crisis should be handled and sharply contrasting visions of the future of Europe.

While Merkel has called for "more Europe" in response to the crisis, with deeper euro zone integration, Cameron, a eurosceptic, said on Monday that a future Europe should have the "flexibility of a network, not the rigidity of a bloc."

Britain, not a member of the euro zone, has irked its European allies by loudly urging the zone to act quickly to end the debt crisis while not being prepared to contribute to euro zone bailouts.

Britain is happy to let the euro zone forge ahead with greater fiscal integration, but wants no part of it itself.

The biggest fear in London is that it will be left out of crucial decisions affecting the European single market, the aspect of the EU the British government prizes most highly.

Cameron is likely to seek assurances in his meeting with Merkel on Friday that that will not be the case.

Britain believes the European Central Bank should act as a lender of last resort to fight the euro zone debt crisis but Germany rejects the idea.

Merkel wants changes to the EU treaty to reinforce euro zone integration. Cameron has signalled he may try to use a treaty renegotiation as an opportunity to wrest back some powers from Brussels to London.

That would please many in his party who are deeply eurosceptic and would like Britain to have a much looser relationship with Europe or to leave it altogether. But it would open up a battle with Cameron's Liberal Democrat coalition partners, who see it as a waste of time.